CAPABILITIES AND COMPETENCIES - TOWARD STRATEGIC

RESONANCE BETWEEN OPERATIONS AND STRATEGY

PROCESSES WITHIN FIRMS

(Draft version)

Professor S Brown1

Dr Brian Squire2

University of Exeter

Discussion Papers in Management

Paper number 07/16

ISSN 1472-2939

1Professor Steve Brown, School of Business and Economics, The University of Exeter, Streatham Court,

Rennes Drive, Exeter, EX4 4 PU, United Kingdom. Tel: +44(0)1392263200, Fax@ +44(0)1392263242. Email:

Steve.Brown@Exeter.ac.uk 2Dr Brian Squire, Manchester Business School, The University of Manchester, Booth Street West, Manchester,

M15 6PB, United Kingdom. Tel: +44(0)1612756333. Email: brian.squire@mbs.ac.uk

1

There has been a plethora of literature which discusses the strategic importance of

routines, related to the Production/Operations function, that take place within firms. It has

been argued that these routines allow firms to accrue capabilities (Nelson and Winter 1982)

which, over a period of time, may be developed into competencies that allow a particular

firm to gain competitive advantage due to the inimitable basis upon which competencies are

formed. It is axiomatic that many of these routines, capabilities and, indeed, competencies

reside within, but of course are not limited to, the Operations function of the firm. We might

suppose, therefore, given the strategic importance of such capabilities, that there would be

explicit links made within the literature between such strategic competencies on the one hand

and the role of the Operations management function within the firm on the other.

However, we contend that much of the literature on routines, capabilities, and

competencies within strategy mainstream literature makes no explicit allusion to the strategic

importance of Operations management within the firm. Moreover, we suggest that much of

the mainstream business strategy literature likewise makes little explicit reference to the

Operations function as a strategic contributor to the firm. We also argue that part of the

‘blame’ for the failure of the Operations management function to be seen within the

mainstream strategic realm lies within the inability of the manufacturing/Operations strategy

literature to make a sufficiently strong case for such inclusion. The result to this is that

articles continue to be written extolling the virtues of routines, capabilities, and competencies

without any understanding as to how such firm-specific capabilities line up with the

Operations function, where much of these activities take place.

More pertinent to the role of strategy is that such capabilities do not come about by

chance but need, instead, to be part of strategic intent (Hamel and Prahalad 1989). We

suggest that the very process of strategy will indicate the level to which such capabilities will

be developed and safeguarded over time. We will argue in this paper that managers are

sometimes incapable of developing such capabilities for three reasons:

1. The strategy making process remains stuck in a paradigm more closely related to

traditional mass production approaches where such dynamic capabilities were not

required.

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2. Senior-level strategic managers who, we might expect, are chiefly responsible for

guarding such competencies, may have little or no understanding of strategic

capabilities that reside within Operations.

3. Other strategic-level decisions leading, often, to dramatic levels of outsourcing and

downsizing within the firm, means that the firm loses the potential to accrue, develop

and retain competencies over time.

The structure of the paper is as follows. In the next section we discuss how the

resource-based view of strategy, including notions of capabilities and competencies, is

dependant upon Operations management and why the latter must be seen in terms of strategic

importance. Following this, we explain why manufacturing/Operations strategy literature has

failed to influence the wider mainstream strategy debate. We then discuss why there is a gap

between Operations and strategy level decisions, which has developed over time, even with

the emergence of new manufacturing paradigms. After this we examine some of the current

paradigms including Lean Production, Agile Manufacturing and Mass Customization and

show these are often talked about in terms of capabilities but without any reference to

strategic issues of how these capabilities can be accrued, developed and protected over time.

Finally, we discuss the concept of strategic resonance.

RESOURCE BASED STRATEGY.

Undoubtedly, the strategy process is a complex and dynamic issue for firms (Mintzberg

et al 2000 Whittington 2001) and managers are faced with a range of contradictory

statements about what constitutes ‘good’ strategic practice. For example, the tension between

resource-based versus market-led strategies continues to appear in the literature and the focus

of attention given to each, as both approaches are explored in turn by supportive sets of

academics, may be likened to a ‘swing of a pendulum’ (Hosskisson et al 1999). The

resource-based view of the firm and its relation to planning strategy has become increasingly

popular in recent times. This approach can be traced back to Penrose (1959:24) where she

described the firm as "more than an administrative unit; it is also a collection of productive

resources".

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Under the resource-based view, senior level strategists are charged with determining

the best use of resources, and to leverage these either alone, on a firm-specific basis, or with

partners (Wernerfelt 1984, Barney 1991, Dierickx, and Cool 1989, Lamming, 1993, Hines,

1994, Stump et al 2002, Ireland et al 2002). Strategists, therefore, are charged with

assessing firm resources, developing their accumulation and then utilizing these in order to

convert distinctive competencies into competitive advantages that meet market requirements.

Such capabilities are important as a means of gaining competitive advantage as Hamel and

Prahalad (1994:78) suggest:

"To get to the future first, top management must either see opportunities not seen by

other top teams or must be able to exploit opportunities, by virtue of preemptive and

consistent capability-building, that other companies can't copy”

Resource-based strategy thus depends upon senior-level managers who are concerned

with scanning external opportunities, while at the same time, developing and guarding

capabilities within the firm’s Operations that are superior to other competitors and which

other competitors either cannot copy, or will find it extremely difficult, to copy (Teece et al

1997, Eisenhardt and Martin 2000). This leads to our first proposition:

Proposition 1: Those firms that have senior level mangers who understand the

importance of accruing, developing and sustaining Operations capabilities, are more

likely to safeguard these capabilities than those that do not.

The ability to develop and guard such capabilities depends upon deploying and

coordinating different resources (Amit & Schoemaker, 1993; Grant, 1996; Prahalad &

Hamel, 1990; Teece et al 1997). These capabilities reside in Operations’ routines that are

essentially intangible (Conner & Prahalad, 1996; Itami & Rohel, 1987; Kogut & Zander,

1992; Leonard-Barton, 1992; Winter, 1987). Accruing capabilities depends upon firm-

specific knowledge, emanating from learning that takes place within the firm (Iansiti &

Clark, 1994; Leonard-Barton, 1995; Teece et al., 1997; Ulrich & Lake, 1990). The scope of

learning may be wide but includes problem-solving tasks whose purpose become evident in

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the gaps between potential and existing Operations performance (Dosi & Marengo, 1993).

As Cantwell and Fai (1999:331) assert:

“The essential idea here […] takes the form of firm-specific learning in production, by

way of a process of cumulative and incremental problem-solving activity […] The

outcome of this firm-specific learning process in production is the creation of tacit

capability or corporate technological competence, that requires the generation of

specially tailored knowledge inputs, the composition of which inputs reflects the

company's distinctive fields of technological specialisation and the focus of its learning

activity.

However, the problem for firms that follow a ‘resource-based’ strategy of accumulating

technological and other assets is that simply accumulating a large knowledge base may not

be sufficient - as the cases of well-established firms like IBM, GM, Kodak and others

demonstrate (Bessant et al 2001). A concern with capabilities is that routines undertaken

within Operations may develop into excellence in the “wrong things” and inward-looking

myopia is an issue that needs to be addressed by strategists as Verdin and Williamson

(1990:10) explain:

"Basing strategy on existing resources, looking inwards, risks building a company that

achieves excellence in providing products and services that nobody wants...market-based

strategy, with stretching visions and missions, can reinforce and complement competence

or capability-based competition. And that successful strategy comes from matching

competencies to the market."

To combat this, it has been advocated by Teece and Pisano (1994: 542) that competitive

advantage can be gained by:

‘timely responsiveness and rapid product innovation, coupled with the management

capability to effectively co-ordinate and redeploy internal and external competencies’.

This approach places considerable emphasis upon the conscious role that can be played

in shaping and configuring the organization and its competencies to meet these challenges –

termed by Teece and Pisano (ibid) as ‘managerial capability’. This is where the distinction

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between capabilities and competencies comes to the fore because the latter is inextricably

linked to matching firm-specific capabilities with market needs.

The notion of capability has been extended into that of dynamic capabilities

(Eisenhardt and Martin, 2000; Teece et al., 1997). An example is human and intellectual

capital (Barney, 1991; Castanias and Helfat, 2001; Reich, 1991; Ulrich and Lake, 1990;

Wright et al., 1994, 2001). This is enhanced by the development of people’s information,

knowledge, and ideas (Pfeffer, 1994), and these in turn help to create dynamic flexibility

(Hitt et al., 1998) and strategic competence (Barney, 1986; Bates et al., 1995; Jayaram et al.,

1999).

The view of competencies as resources and their implications for company performance

and long-term economic growth increased in popularity during the 1990s (Prahalad and

Hamel, 1990; Carlsson and Eliasson, 1994; Duysters and Hagedoom, 1996) but the

competence-based theory of the firm has emerged from the more general resource based

approach (Richardson, 1972; Winter, 1987).

Prahalad and Hamel, (1990: 80) argue that there are a number of important issues

involved in core competencies. First, a core competence should be difficult for competitors

to imitate: “And it will be difficult if it is a complex harmonization of individual technologies

and production skills.”

Second, managing and utilizing competencies are the ultimate responsibility of the most

senior-level management team, including the CEO - and CEOs will: “be judged on their

ability to identify, cultivate, and exploit core competencies [….]” (ibid p91).

Third, as we indicated earlier, learning gained from accumulating skills over time is a central

feature because “Core competencies are the collective learning in the organization, especially

how to coordinate diverse production skills and integrate multiple streams of technologies.”

(ibid.)

Fourth, core competencies provide opportunities, rather than limitations for the firm:

Prahalad and Hamel cited how NEC’s competencies applied to the chosen ‘core product’ -

semiconductors - allowed NEC to compete in both telecommunications and computing

industries. These four ‘tests’ are relevant to our discussion because they include the need for

senior managers to understand competencies, many of which are related to Operations, as

well as the need to develop these over time. Understanding such competencies provides

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strategic opportunities, rather than being a limiting factor to the firm's strategic scope of

options. This leads to two, interlinking propositions:

Proposition 2: The mere presence of senior-level staff whose job it is to protect in-

house capabilities is irrelevant if such capabilities do not meet market requirements.

and

Proposition 2a: The role of senior-level Operations (or related) staff must include

scanning and being aware of external opportunities and not be one of guarding

perceived internal capabilities if such routines and production skills provide no

strategic advantage for the firm..

However, there are difficulties in pursuing a competence based strategy and a key issue

is that identifying a set of core competencies and capabilities may not be as easy as some of

the literature implies, because senior-level strategists within the firm may not agree on what

is really strategically important (Marino, 1996; Schroeder and Pesch, 1994).

Another issue for the resource based view is that sustainability depends upon three criteria:

imperfect imitability, imperfect substitutability and imperfect mobility (Barney, 1991).

Resources are only imperfectly imitable if firms that do not have them cannot purchase them.

There is a threat that strategies based on substitutable resources might be either matched by

competitors using equivalent resources or, alternatively, made obsolete by the introduction of

strategies based on superior resources. Resources should not be mobile between actors.

Assets such as a reputation for quality, loyalty or innovation cannot be traded freely on open

markets but must be accumulated over a sustained period of time within firms.

The extended RBV is basically a recognition that assets may also be acquired externally

on factor markets (Mathews, 2003), and has led scholars to search for resources outside of

the boundaries of the firm. In particular, studies have focussed on the role of inter-firm

relationships as a means to acquire external resources (Koh and Venkatraman, 1991;

Harrison et al , 2001; Ireland et al, 2002). The relationship acts as a vehicle on which to

acquire those resources required to fill a particular ‘resource gap’ (Grant, 1991). However,

not all inter-firm relationships are equal in this context; the type of resources acquired is

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contingent on the form of relationship between the two parties (Araujo et al, 1999; Moller et

al, 2003).

However, within the overall resource-based view of strategy it is notable that the terms

‘Operations and ‘Operations strategy’ are notable for their absence. Indeed, it might be

argued that the terminology used in much of the resource-based literature falls shy of citing

Operations as a strategic factor at all and, at best, the Operations function is seen within the

narrow confines of ‘making products within factories’. Thus, within the literature, although

much light has been shed on wider issues of routines, capabilities and competencies, we

suggest much of the context of this is devoid of the key context within which such activities

take place – within Operations. This robs academics and practitioners alike of the full

understanding of the Operations role. However, as we shall now see, part of the problem lies

with the failure of manufacturing/Operations strategy literature to make a sufficiently strong

case to influence the strategy mainstream that might lead to a shared and common dialogue

for understanding capabilities, competencies and resourced based strategy.

THE FAILURE OF MANUFACTURING/OPERATIONS STRATEGY

Dangayach & Deshmukh (2001) have estimated that over 250 conceptual and empirical

papers on manufacturing strategy have been published in over 30 major journals since the

seminal contributions of Skinner (1969; 1974; 1985), Hayes and Wheelwright (1984), and

Hill (1985). Academics have asserted for a long time that business and manufacturing

strategies should be “linked” (Corbett and Van Wassenhove, 1993; Garvin, 1993; Hill, 1980;

Schendel and Hofer, 1979; Skinner, 1969; Wheelwright, 1984). Much of the content

concerned with proposed links is couched in terms of the need to align Operations with a

market-led strategy. In contrast, it has also been argued that Operations must contribute to a

broader “resource protection” strategy (Amit and Schoemaker, 1993; Barney, 1986, 1991;

Grant, 1996; Lei et al., 1996). Given the strategic importance of capabilities that reside

within Operations, both within the firm and across networks, we might assume that firms

would:

a) Ensure that they had senior-level Operations personnel in place; and

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b) Allow these senior level strategic managers to influence wider business strategy

decisions; and

c) Empower such senior level managers to protect and guard capabilities from being

divested or outsourced over time. The problem, though, is that a case for divesting

may come from another senior-level strategist within the firm who might not fully

understand the strategic importance of Operations (Hayes and Wheelwright 1984,

Brown and Blackmon 2005).

It might be assumed that a resource-based view would necessarily involve Operations

managers who could be best positioned to fully understand what the content of resource-

based strategy should be. Given such strategic responsibility, the Operations manager knows

best how far to set stretch-goals and “strategic intents” (Hamel and Prahalad 1989) because

he/she is closest to where competencies and capabilities reside within the business enterprise.

Operations capabilities have been likened to ‘stocks’ of strategic assets that are accumulated

over time. These strategic assets are not able to be copied or acquired and good substitutes

cannot be found (Dierickx & Cool, 1989). Thus, a range of capabilities such as low cost,

quality, flexibility, and delivery performance, residing within the firm, are stocks of strategic

assets that have been accumulated over time. These competitive capabilities, which are

needed within modern manufacturing paradigms, may be enhanced by appropriate

investment in process technology (Bessant et al.2001). In particular, process technology is a

strategic enabler within manufacturing firms (Meredith & Vineyard 1993; Schroeder et al.

1995; Wathen 1995; Beach et al. 2000), allowing the firm’s manufacturing-specific

capabilities (Bahrami & Evans 1987; Twiss & Goodridge 1989, Adler & Ferdows 1990;

Bessant 1993) created by process technology to be more competitive in the market.

The body of manufacturing strategy literature has often been couched in terms of

providing a case for the existence of manufacturing strategy (Hill, 1995; Platts & Gregory,

1990). The volume of literature on manufacturing strategy has increased substantially since

the mid-1980s when, among others, Hayes and Wheelwright (1984) made a profoundly

important contribution by mapping how manufacturing’s role is linked with that of business

strategy. Their model showed that the degree of involvement varies from a position of being

passive and reactive (stage 1) to a full, pivotal involvement in the planning stages of business

strategy (stage 4). As important as this has been to the debate on manufacturing/Operations

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strategy literature, its impact is suspect for at least three reasons. First, evidence is lacking as

to the extent to which firms utilize the model within their strategic planning process or how

firms change within this four-stage process either over time (Hum & Leow, 1996). Second,

there is little evidence to show how the model has been applied within particular industrial

sectors. Third, this, and other models within the Operations strategy literature, has not been

embraced within the mainstream strategy literature and it is still unclear as to how precisely

manufacturing strategy links with the corporate strategy process (Spina 1998). The reason

seems to lie in the fact that in the attempt to be seen as an important area of strategy

literature, manufacturing strategy has failed to create sufficient links with mainstream

strategy literature. Ward et al. (1996: 597) observe that:

“research in strategic manufacturing practices has been largely independent of research

in competitive strategy despite a considerable literature proclaiming the need to regard

manufacturing as a competitive weapon.”

Part of the “blame” for the lack of common dialogue between the business and

manufacturing strategy literatures lies with major gaps in the manufacturing strategy

literature. Leong et al. (1990) suggest that the manufacturing strategy literature has not

produced a well-organized paradigm due to three reasons:

(a) An absence of cohesive theory-building efforts on the part of manufacturing

strategy researchers;

(b) A shortage of survey-based empirical work; and

(c) A lack of effort to integrate manufacturing strategy ideas with established

concepts and theories developed in related disciplines.

Surprisingly, research in strategic manufacturing practices has been largely independent of

research in competitive strategy despite a considerable literature proclaiming the need to

regard manufacturing as a competitive weapon (Buffa, 1984; Cohen & Zysman, 1987; Hayes

& Wheelwright, 1984).

Thus, the extent to which manufacturing strategy has impacted upon wider realms of

business strategists is far from clear. There has even been the suggestion that, for some

academics and practitioners alike, manufacturing strategy might be seen as passé (Clark,

1996). What is clear, though, is that manufacturing strategy has not been alluded to and cited

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in the body of mainstream strategy literature; nor has it become an explicit feature of the

body of literature, largely under the heading of ‘innovation’, that discusses routines,

capabilities and competencies. We now seek to offer insights into why such an omission has

taken place over time.

THE TRANSITION FROM CRAFT TO MODERN PRODUCTION

METHODS AND ITS IMPACT UPON STRATEGY

The transition from craft manufacturing through mass production to the current era

provides profound insights into how Operations strategy became divorced from the strategy

mainstream.

The transition from craft to mass production caused four major factors to emerge. First,

whereas under craft production, there was a close link between the strategic pursuit of the

firm and the Operations it performed, this changed under mass production. In short,

Operations became identified as a separate function and Operations managers were often

absent from the most senior levels of the firm as enterprises became larger and more

functionally organized (Chandler, 1962; Chandler, 1992; Lazonick, 1991). Coinciding with

the transformation from craft to mass processes was the emergence of the M-form, which

over time dominated the structure of firms within the USA and also became the dominant

form among large diversified companies in Britain, France and Germany (Whittington and

Mayer, 2000).

The M-form enabled the subsequent development of the conglomerate company and the

multinational enterprise (Williamson, 1981; Teece, 1977, 1983, 1986). Although the

organizational shape of the M-form has come under some criticism (Gooderham and Ulset

2002, Bartlett and Ghoshal 1993) the reasons for this are not linked to the development and

protection of capabilities and competencies, nor of their deployment by senior-level

Operations managers. One of the areas under-developed within the literature is, we suggest,

how the M-Form led, consciously or otherwise, to the demise of the strategic importance of

Operations. Thus, although there has been increasing importance placed on Operations

personnel in terms of their contribution to the firm’s capabilities (Womack et al., 1990;

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Kenney & Florida, 1993), - and hence part of the dynamic capabilities of the firm (Teece et

al 1997) to which we referred earlier - this has not included discussion about their

involvement in terms of their position of level of seniority within the hierarchy nor of the

associated strategic influence they might have within the firm.

The second factor is that, within mass production and the emergence of the M-Form,

the role of Operations managers often became reduced to that of a technical specialist rather

than an involvement in the wider strategic business of the firm. Thus, coupled with our first

point, Operations’ contribution to the strategy process was often ignored by other, often more

senior-level, strategists within the firm whose understanding of the potentially strategic

contribution from Operations were, typically, very limited (Hayes & Wheelwright, 1984).

Third, the role of Operations strategies declined over time (Skinner 1969, 1985, Hill

1995, Brown 2000). This is an important issue too because, as we have noted before,

accruing and developing capabilities and competencies does not come about ‘by chance’ but

depends upon a strategy to accumulate such. However, over time, Operations strategies, if

they existed at all, were merely the means by which an already existing business strategy

became translated into plant-level, tactical Operations. This may have been appropriate for

the mass production era but current market requirements are entirely different and demand a

dynamic set of capabilities and competencies to be in place (Teece et al 1997).

The fourth factor was a mismatch in the timing of, and synchronization between,

business strategy and, where it existed at all, Operations strategy, with the former being

seen as ‘long-term’ and the latter, ‘sort-term’ and tactical in nature (Lazonick 1991).

Synchronization in aspects of strategic planning has relevance for Operations because as

Itami and Namarari (1992) suggest, cohesion of timing in linking strategy with technology is

a vital managerial task. This leads to our third proposition:

Proposition 3: The change of paradigms from craft to mass production needs to be

seen not only in terms of the shift from low to high volume; rather, such change

provides the major insights to how the Operations function lost strategic importance, in

spite of its continued pivotal role in a range of mainstream strategy areas, including

core competencies and key success factors.

We suggest that these four changes in the transition from craft to mass production need to be

understood by those who discuss capabilities and competencies as strategic factors for the

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firm. Thus, mass production was not merely about the change from low volume, craft

products, to high volume (mass produced) products. Rather, the four factors provide insights

into the key changes between craft and mass production in the context of strategic planning.

Without senior-level Operations personnel being in place, with the associated power of

involvement within the overall strategy process of the firm, any accumulation of capabilities

and competencies residing within Operations could be under threat. Thus, although as we

indicated earlier, we might expect Operations personnel to be charged with safeguarding

such capabilities they might be unable to do so if a strategic decision has been made at

‘higher’ levels within the firm’s hierarchy so that Operations personnel are powerless to

resist.

These four changes were perhaps inevitable, particularly in the growth of large, multi-

divisional enterprises within the United States. With this increase in size came the creation

of increased levels of hierarchy within the firm. The exclusion of Operations personnel from

the strategic direction of the firm had enormous impact because now, in contrast to craft

enterprises, there could be conflict and tension between conflicting goals within the firm. In

other words, strategic resonance would be difficult to achieve because of conflicting

demands between top levels (strategic) and perceived lower levels (Operations) of

management

Although the strategy process in some firms involves multiple functional areas and

hierarchical areas of the firm (Hax & Majluf 1991), the corporate “parent” typically has the

final say in devising strategy for the subsidiary divisions and plants within the firm (Goold &

Campbell 1988). Such strategy may lead to the demise of accumulated capabilities and

competencies in the pursuit of lowering costs. This is clearly notable in the recent increase in

the level of outsourcing activities where cost, frequently, becomes the key cost driver

(Abdel-Malek et al 2005, Feeny et al 2005)

The key issue for us is that firms have remained stuck within past paradigms of strategy

rooted within mass production. This is notable for the over-dependence upon an elite

strategy-making group at the top of the organization’s hierarchy. As a result of this strategic

dissonance (Brown 2000) occurs not only between the firm and its chosen markets, but also

within the firm itself, in the mismatch between strategic intent (Hamel & Prahalad, 1989) and

Operations capabilities. The reason for this lies in the changes of manufacturing/Operations

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processes over time and how these became divorced from the firm’s strategy process

(Lazonick, 1991; Lazonick & West, 1995).

Interestingly, much of the literature on routines, capabilities and competencies discuss

changes to the organizational form and a great deal of attention has been placed on the ‘M-

form’ of organization as a coping mechanism to deal with change (Chandler 1992, Ouchi

1984, Milgrom and Roberts 1990). However, although discussions of organizational change

and the emergence of the ‘M-form’ shed light on the historical developments, they fail to

deal with the demise of Operations from the strategic realms of the firm.

THE GAP BETWEEN CAPABILITIES AND THE STRATEGY PROCESS.

We have seen how strategy processes changed under the transition from craft to mass

production. Recently, it has become evident that the current competitive landscape in many

industries is one of ongoing, heightened levels of competition, which demand that a range of

capabilities - including flexibility, delivery speed, and innovation - are in place. Dynamic

environments (Swamidass & Newell 1987; Gerwin 1993) and new production modes such as

mass customization (Pine et al. 1993, Kotha 1995), agile manufacturing (Kidd 1994), flexible

specialization (Piore & Sabel 1984), lean production (Womack et al. 1990), and strategic

manufacturing (Hill 1995; Brown 2000) demand increased manufacturing flexibility and a

more dynamic approach than was the case with the more traditional and inflexible approach

of mass production. These approaches have emerged as a result of increased competition and

greater levels of customer choice.

Mass customization describes the ability to both produce and distribute what are

perceived to be customized goods and services within a Mass market (Davis, 1987). Some of

the literature (for example Gilmore and Pine, 1997; Feitzinger and Lee 1997) indicated that

mass customization somehow follows a natural trajectory through the different eras of

manufacturing: from craft (high variety, low volume Production) to Mass Production (high

volume, low variety Production) through to mass customization (the ability to achieve

simultaneous requirements of both volume and variety).

Mass customization and Agile Manufacturing are sometimes linked but Bessant et al

(2001:30) offer a useful definition of Agility in its own right:

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“Agility in manufacturing involves being able to respond quickly and effectively to the

current configuration of market demand, and also to be proactive in developing and

retaining markets in the face of extensive competitive forces”

Developing capabilities within both Mass Customization and Agile manufacturing

demands that a strategy is in place to achieve these requirements. However, some interesting

current examples of this “strategy-Operations” mismatch have been found because in many

industries, firms have fallen behind due to their failure to apply flexible technologies

“flexibly” (Dean and Snell, 1996). That is, they failed to build-up the proper organizational

processes required to take advantage of flexibility as markets demanded. These organizations

have often encountered what McCutcheon and Raturi (1994) see as the “responsiveness-

customization squeeze”. In hoping to attack markets from a traditional “market-based”

viewpoint, these firms have failed to respond on time to demand because they have tried to

set customization objectives according to strategic marketing prerogatives, but have drawn

their Operations function into impossible targets to deliver the requirements. Under such

circumstances, Operations capabilities were not allowed to achieve their full potential to

survive in the face of hyper-competition. However, Operations strategy may become a means

of ensuring that the firm’s strategic resources are constantly regenerated (Tranfield and

Smith, 1998). Organizational agility would depend directly on Operations’ proficiency in

analyzing, developing, and leveraging resources, capabilities, and competencies.

Perhaps the most popular term to describe the current era is that of Lean

Manufacturing. This developed from the book, The Machine that Changed the World.

(Womack et al 1990). In Womack et al’s (1990) book there was, typically, a 2:1 ratio

between Lean and 'non-Lean' producers in a range of capabilities. For example, Lean

producers would use half the time for innovation compared to 'non-Lean' plants; they would

have at least 50% fewer defects; they would need only half the space required to manufacture

products compared with their non-Lean counterparts; and the same 2:1 ratio applied to

productivity levels. These parameters have relevance for our earlier discussion about ‘stocks’

of strategic assets or capabilities that a firm’s Operations function has accumulated over time

and that others (in this case, non-Lean competitors) would find hard to copy. Clearly, Lean

practices have been adopted across a range of industries but we suggest that, in common with

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mass customization and agile paradigms there are weaknesses regarding the strategic

importance of Operations in Lean manufacturing. The main problems of modern

manufacturing paradigms include the following:

1. The strategic role of the Operations function: The potential strategic contribution made by

the Operations function, upon whom the firm depends for its capabilities in mass

customization, agility and Lean, is largely ignored in terms of its contribution (at any stage)

to strategic planning.

2. Operations strategy: There is little or no mention of the presence and development of

Operations strategy that might feed into corporate planning and strategy. Indeed the term,

"Operations strategy", is noticeable by its absence within the literature on Lean,

Customization and Agile Manufacturing.

3. The role of senior-level Operations staff: Lean and other manufacturing paradigms

literature focus on the operational capabilities and competencies that are required without

addressing the link between these and Operations' presence and involvement at senior levels

within the firm.

These are glaring omissions because Operations capabilities, particularly within Toyota

(often cited as the exemplar of Lean), were dependent upon, and owed their success to, a

strategic process (including who was involved in the strategic planning process) that was

entirely different to that which took place within many firms in the West (Gleave & Oliver,

1990). Toyota was able to fuse together corporate strategy and Operations capabilities into a

unified whole. This was perhaps the most important feature of the Toyota Production

system, yet, for some reason, the link between plant level capabilities and strategy

formulation was a glaring omission in various publications that narrated these superior

Operations capabilities without describing the full strategic context (Brown, 2000). This

leads to our fourth proposition:

Proposition 4: Modern manufacturing paradigms including Lean Production, Mass

Customization and Agile Manufacturing are often discussed in terms of sets of

capabilities that reside within Operations but their links to the strategic processes of the

firm are typically ignored altogether or, at best, underdeveloped.

and

16

Proposition 4a Unless such capabilities are understood and become an explicit part of

the strategic decision making levels of the firm their strategic potential may not be fully

exploited and, indeed, may become lost via a range of strategic decisions including

outsourcing, downsizing and divesting, thereby sacrificing such capabilities.

We mentioned earlier how we might expect senior-level Operations people to be able to

safeguard capabilities and competencies that have developed over time but they are often

incapable of doing so because of their subservient role within the hierarchy of the firm. This

was clearly exemplified at Rover within the UK. Through its alliance with Honda it had

accumulated capabilities and competencies in Lean practices and was heralded as one of the

most ‘Lean’ of all automobile firms within Europe (Johnson and Scholes 1999). These

capabilities came about only because of Rover’s strategic alliance with Honda – in essence

the operational capabilities were accrued and developed only as a result of Rover's strategic

horizontal alliance. However, all of the accumulation of skills, capabilities and

competencies, which had been developed and guarded over time, counted for nothing when

its parent, British Aerospace, then sold Rover to BMW. In essence, a corporate/business

decision had served to threaten accrued capabilities and to annihilate the strategic alliance

with Honda. Over a short period of time, Rover’s fortunes declined until finally, in 2004,

Rover ceased to exist.

The strategy-Operations capabilities issue was clearly evident at Chrysler. The turnaround

between 1991 (when it was almost bankrupt) and 1996 owed a great deal to accruing

capabilities in innovation. Rapid innovation demonstrated the intense learning that Chrysler

had undertaken concerning Japanese approaches (Brown, 2001). However, the merger that

took place between Daimler and Chrysler in 1999 dramatically threatened these capabilities.

The merger of Daimler–Chrysler created the world’s fifth-largest car company by volume but

there were major differences both in the organizational structures and the innovation

processes that resided within the two firms. At the time of the merger, Chrysler purchased

70% of its added value from its US suppliers with whom it enjoyed the best relationships of

the former, ‘Big 3’ US car producers (Brown, 1998). In contrast, Daimler was, and remains,

a very vertically integrated manufacturer of luxury cars. The problem is evident in the

differing supply networks and the merger has threatened one of the major foundations upon

17

which Chrysler’s success in innovation was built, which, like Rover, was its strategic

relationships with suppliers. The Daimler–Chrysler exemplifies part of the strategic puzzle

for firms: on the one hand, given the over-capacity evident within the automobile industry,

there are valid, strategic reasons why the merger took place; on the other, the development of

capabilities and competencies in innovation is strategically important but the merger may

threaten the strategic innovation capabilities of both firms within the merger.

The key problems related to modern manufacturing paradigms are shown in Table 1.

---------------------------------------

Please insert Table 1 about here

---------------------------------------

DISCUSSION: THE NEED FOR STRATEGIC RESONANCE BETWEEN

OPERATIONS AND STRATEGY PROCESSES WITHIN FIRMS

Mass production’s very existence was a major process innovation with very defined

and narrow sets of routines, which had enormously positive consequences for the US

economy. Indeed, for several decades in the 20th Century, the adoption of this paradigm

enabled the USA to become an economic powerhouse. It is within the context of this

manufacturing paradigm that much of the literature on routines was positioned. However,

with current greater demands being placed on flexibility and speed (among other competitive

requirements) the view that sees the role of Operations being reduced to menial, repetitive,

tasks and routines is inappropriate for the current era. More fundamental to our discussion is

that, although the strategic planning processes associated with mass production may have

been entirely appropriate for the relatively static nature of markets that existed before, it is

wholly inappropriate now that many market requirements are substantially different with

respect to the pace of rapid market changes.

The problem remains that for some writers the notion of capabilities continues to be

rooted within the mass production strategy paradigm with the separation of Operations from

strategy levels of the firm. For example, Nelson (1991: 67–68) stated “three different if

strongly related features of a firm that must be recognized […] its strategy, its structure, and

18

its core capabilities” but he also endorsed the rather fixed notion of hierarchy in which the

contribution of Operations personnel was functional in scope and reactive in nature with little

or no strategic relevance. Thus, for Nelson (ibid) core organizational capabilities are based

on:

“a hierarchy of practiced organizational routines, which define lower order

organizational skills [skills required at the lower levels of the hierarchy], and how these

are coordinated, and higher order decision procedures for choosing what is to be done

at lower levels”.

Such separation and specialization led to (and still allows if not rectified) organizational

distance between Operations managers and the most senior managerial levels of the firm

(Chandler, 1962, 1992; Lazonick, 1991; Wheelwright and Clark, 1992).

Whilst the ‘benefits of functional specialization’ (Pavitt, 1998) were, and continue to be, seen

as a key means to enhancing the firm’s processes, during the mass production period this

specialization also created a gap between the various functional activities.

We are not trying to prescribe a formula for success here. Rather, we are attempting to

show the inherent strategic blockages that took place within mass production – which were

permissible given the nature of static markets of the time – but are inappropriate today. We

now allude to the notion of strategic resonance as a means of unifying notions of capabilities,

competencies linked to the specific – and strategic – role of Operations within and across

firms. Brown (2000:6) has already defined strategic resonance as:

“an ongoing, dynamic, strategic process whereby customer requirements and

organizational capabilities are in harmony and resonate. Strategic resonance is more

than strategic fit—a term which has often been used (rightly in the past) to describe the

‘fit’ between the firms’ capabilities and the market that it serves. Strategic resonance

goes beyond that. Strategic fit may be likened

to a jigsaw where all parts fit together. This is a useful view but it can have [.] a very

static feel to it. In strategic fit it is as if once the ‘bits’ are in place, the strategic

planning is done. By contrast, strategic resonance is a dynamic, organic process, which

is about ensuring continuous

19

linkages and harmonization between:

• The market and the firm’s Operations capabilities

• The firm’s strategy and its Operations capabilities

• All functions and all levels within the firm.

Firms need to find and exploit their strategic resonance— between markets and the

firm; within the firm itself; and between senior level strategists and plant-level,

Operations capabilities.”

We develop the term strategic resonance here to focus specifically on capabilities,

competencies and resource driven strategies. Brown and Blackmon (2005) argue that three

core areas contribute to strategic resonance between Operations and business strategy:

(1) Identifying and developing Operations capabilities, especially core capabilities related to

people, processes, products, and networks.

(2) Increasing senior executive awareness of Operations capabilities in the strategy process.

(3) Increasing the involvement and influence of manufacturing executives in the strategy

process

In essence, strategic resonance is concerned with managing two sets of capabilities that

need to be in place simultaneously. These are:

1. Within the firm’s functions so that there is cohesion and strategic alignment within them.

2. Between the firm’s capabilities and the market segments in which the firm wishes to

compete.

The issues of implementing strategic resonance include one of communication (who

speaks to whom about what?) and how the process is then operationalized. Again, with the

caveat that we are not describing a panacea, we suggest that ensuring links take place

between capabilities, competencies and Operations strategy (allied to business strategy) the

following must come into play.

First, Operations/Manufacturing personnel need to be in place at senior

management/director levels of the firm in order to rectify the omission that took place under

the changes from craft to mass production. As we have noted, such senior-level presence is

not common in many firms nor is it an explicit feature within the strategy mainstream

literature (Hayes and Wheelwright, 1984; Hill, 1995).

20

Second, there needs to be much greater cohesion and less organizational ‘distance’

between the role of the Chief Executive Officer and the Chief Operating Officer within firms.

Recently, the advent of this closer liaison of the two roles accounts to some degree for

expertise within Operations capabilities in various firms, most notably Dell (Dell and

Fredman, 1999; Hodgetts, 1999) and Toyota (Brown 2000). The issue of organizational

distance (and its negative impact upon innovation) has been addressed to some extent within

the literature (e.g. Clark and Wheelwright 1992, Simonin 1999) but the linkages between

the CEO (business ) and COO (Operations) strategies has not been fully explored.

Third, these senior-level manufacturing/Operations personnel need to be involved in the

business strategy planning process rather than being limited to a role of technical specialist.

Fourth, there will need to be explicit, plant-specific, Operations strategies that feed into,

and form part of, the business strategy. A key element of this is that there needs to be

cohesion in timing between manufacturing/Operations and business strategies.

CONCLUSIONS

We have provided insights into how the strategic role and importance of Operations has

diminished within firms over time. The two main reasons are:

1. The changes of manufacturing paradigms from craft through mass production to

the current era of Mass Customization and Lean, among others.

2. The change of the organizational form over time, particularly in the emergence of

the M-form.

Both of these developments led to the Operations function becoming relegated in

strategic importance due to a lack of senior level presence within the firm; the change of

role in Operations from any business input to a technical function; and the absence of

manufacturing/Operations strategies that may lead into, and form part of, wider business

strategy. This separation of Operations from the strategy process has become evident in

how academics and practitioners alike view the strategy process. The strategic

importance of Operations has become notable by its absence in mainstream literature in

spite of Operations’ central and pivotal role in the whole debate on capabilities,

competencies and the wider resource-based view of strategy formulation. In addition,

from the manufacturing/Operations side, little impact has been made in infiltrating and

21

influencing the mainstream literature in spite of over 250 articles having been written on

manufacturing strategy since Skinner's (1969) seminal work. However, what is clear is

that capabilities and competencies in Mass Customization, Lean Production and Agile

Manufacturing do not come about by chance but, instead have to developed and guarded

over time. The fusion of the two elements of strategy mainstream and manufacturing

strategy into a more unified coherent body would seem to be a necessary development

within future strands of the literature in order to aid our understanding of modern

manufacturing paradigms.

22

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32

Table 1: The Strategy Operations Gaps in Manufacturing Paradigms

Paradigm Authors Description

Problem Company Illustrations Key Issues

Lean Production

& Lean Supply

Womack et al

(1990); Lamming

(1993)

This concept was developed

from the massively successful

Toyota Production System

(TPS), which focused on the

removal of all forms of waste

from the production

transformation system.

The strategic importance of Operations is

underplayed here – no mention is made

of the need for senior-level Operations

personnel whose role includes helping to

shape business strategy and not simply

restricted to a ‘technical’ function.

Chrysler was seen as the prime example

but Chrysler is a case in point where

Lean capabilities were in place but were

then diminished as a result of the

business merger with Daimler.

The same is true of Rover with the sale

to BMW and then its subsequent demise

Having Lean capabilities may be a

necessary condition to compete in very

volatile markets but without staff in

place to protect and develop such

capabilities these competencies may be

lost by an over-riding corporate

decision.

Mass

Customization

Pine et al (1993) Reflecting the need for high

volume combined with

recognition of customers’

(or ‘consumers’) specific

wishes

Again, the strategic role of Operations is

underplayed here – no mention is made

of the need for senior-level Operations

personnel whose role includes business

strategy and not simply ‘technical’

capability

Dell has been seen as the greatest

exponent of this. However, Hewlett

Packard is a case where such capabilities

were in place within US and Asian plants

but such capabilities have been swept

aside by the corporate decision to

outsource all production of PCs.

Mass Customization is an increasingly

required competence but such

capabilities cannot be developed by

chance. The need for firm-specific

strategies is paramount and key, senior-

level Operations personnel need to be

able to develop and safeguard such

capabilities

Flexible

Specialization

Piore and Sable

(1984)

(Dertouzos et al.

1989)

This concept relates to the

manufacturing strategy of

firms (especially small firms)

to focus on parts of the value-

adding process as well as

collaboration within networks

to produce whole products.

The authors provide insights into

capabilities but do not link this to key

aspects of seniority of Operations staff,

lack of plant-specific Operations

strategies and cohesion between business

and Operations strategies

Japanese companies were cited as

exponents of ‘flex-spec’ abilities.

However, the authors do not link these

capabilities to the strategic role of

Operations within the firm.

To an extent this paradigm has been

replaced by Mass Customization where

as we have noted above, the need for

firm-specific strategies is paramount and

key, senior-level Operations personnel

need to be able to develop and safeguard

such capabilities

Agile Manufacturing Kidd (1994)

Gottlie (1994)

Richards (1996)

This concept emphasizes the

need for an organization to be

able to switch frequently from

one market-driven objective to

The key task here is the ability to rapidly

alter any aspect of the manufacturing

enterprise in response to changing

market demands. However, no mention

Qing Cao and Dowlatshahi (2005) offer

numerous examples across a range of

industries.

Like other manufacturing paradigms

there is little in the literature that

addresses the business/Operations

mismatch to which we have referred

33

Upton (1995)

Nagel and

Bhargava (1994)

another. is made of Operations strategies to

enable such capabilities to be in place

earlier in the paper.

Strategic

Manufacturing

Hill (1995);

Brown (1996;

2000)

Here the authors emphasize the

need for Operations capabilities

to be framed in a strategic

context and brought to the fore.

The authors offer templates to

positioning Operations

capability and strategy.

Since the seminal work of Skinner upon

whose work many authors expand, little

impression has been made in the strategy

mainstream literature and, more

alarmingly, there are only very few

firms that practice strategic

manufacturing

The authors cite G.E., Dell, and

especially Toyota where the fusion

between strategy and Operations

capabilities is very clear

Much greater appeal to the strategy

mainstream in both academic and

practitioner circles needs to be in place.

Without this much of the literature will

simply ‘preach to the converted’.